How to Write an Effective Hardship Letter for Loan Modification

Getting approved for a loan modification can be difficult, but a well-written hardship letter can significantly improve your chances. A hardship letter explains your current financial situation and why you require modified loan terms to avoid defaulting on your mortgage.

Lenders want to work with borrowers to find solutions, so take the time to craft an honest, detailed letter that makes your unique case. Follow these tips to learn how to write an effective hardship letter for loan modification.

What Should You Include in a Hardship Letter?

Your hardship letter needs to demonstrate that you made a good faith effort to pay your mortgage and that your hardship was out of your control Here are key elements to include

Explain the Hardship

Briefly explain the event that caused your financial hardship. Common hardships include job loss, reduced income, divorce, unexpected medical expenses, disability, death in the family, etc. Provide relevant dates and details.

Describe Your Financial Situation

Explain how the hardship impacted your finances and ability to pay your mortgage. Provide details about loss/reduction of income, depleted savings, maxed out credit cards, other debts, etc.

Request Specific Relief

Clearly state the relief you’re requesting, like reduced interest rate, extended term, forgiving late fees, etc. Asking for a specific solution shows the lender you’ve thought critically about a workable remedy.

Show Ability to Resume Payments

Lenders want to see you can resume making (modified) payments. Explain how your situation and income will improve moving forward. Provide a realistic, proposed payment plan based on your current and expected financial situation.

Attach Supporting Documentation

Include documents like bank statements, pay stubs, medical bills, divorce decree, death certificate, etc. to prove and add credibility to your claims.

Express Your Desire to Keep Your Home

Tell the lender you wish to keep your home if possible. Explain the importance of your home to you and your dependents. Lenders want to avoid foreclosure too.

Formatting Tips

Follow these formatting tips to further improve your chances:

• Keep it short – Stick to 1 page if possible. Lenders have many letters to read. Concise is best.

• Use their full name – Address the lender formally using their full company name.

• Be polite and grateful – Don’t demand relief. Thank them for their time and consideration.

• Check for errors – Double check for typos and grammar errors. A sloppy letter reflects poorly.

• Print and sign – Print and sign the letter in blue or black ink. Digital signatures are also acceptable.

Sample Hardship Letter

Use this sample letter as a guide when drafting your own:

Date

ABC Mortgage Company
123 Main St.
Anytown, CA 12345

RE: Request for mortgage loan modification

Dear ABC Mortgage Company:

I am writing regarding the mortgage for my home at 123 Oak Rd., Anytown, CA 12345. I am requesting mortgage relief assistance due to financial hardship caused by unexpected medical bills and loss of income.

Six months ago, I suffered a back injury that prevented me from working and required surgery and physical therapy. The medical expenses have exhausted my savings and maxed out my credit cards. Additionally, being out of work for 4 months severely reduced my income as a construction foreman.

I am still unable to resume full duties at my previous physical capacity, resulting in reduced income. I have attached medical documentation and recent pay stubs evidencing my situation.

I am requesting that my mortgage loan be modified to allow me to resume affordable payments. Specifically, I would like the interest rate reduced from 5% to 3% and the term extended from 30 years remaining to 40 years. Based on my current income, I can afford monthly payments of $950 (reduced from $1,500).

Having lived in my home for 10 years, it very important to me and my family. I have worked diligently to make all mortgage payments on time until this unexpected hardship arose. I am optimistic my health and income will improve in the coming months as I transition to light duty work. I wish to continue working with ABC Mortgage and repaying my loan obligation.

Sincerely,

[Your Name]

Common Hardship Situations

Here are additional tips tailored to some common hardship situations:

Unemployment

• Provide termination letter, unemployment benefits statement.
• Explain job search efforts, prospects for reemployment.
• Seek consultations with career counselors and workforce agencies.

Divorce

• Provide divorce decree, separation agreement, new budget.
• Explain how household income/expenses changed.
• Request loan be transferred to spouse remaining in home if applicable.

Disability/Illness

• Provide doctor’s notes, disability/SSI statements, medical bills.
• Explain treatment, recovery timeframe, prognosis.
• Update income based on disability payments.

Death in Family

• Provide death certificate, document loss of deceased’s income.
• Include expenses from funeral, dependencies now relying on you.
• Seek public assistance programs as needed.

Alternatives to Hardship Letters

If your lender denies loan modification, here are some alternatives to avoid foreclosure:

• Forbearance – Temporarily reduced or suspended payments.

• Repayment plan – Repay missed payments together with regular payments over time.

• Partial claim – Lender provides an interest-free loan to reinstate your mortgage.

• Short sale – Sell your home for less than you owe and pay back difference.

• Deed in lieu of foreclosure – Voluntarily transfer ownership of property to lender.

Don’t wait to ask for help. Mortgage default can happen quicker than you expect. Take control early by communicating openly with your lender. A thoughtful hardship letter demonstrates your commitment and can lead to a successful loan modification plan.